Looking for some advice...I've been thinking lately about my parents' financial situation, which isn't great. Well, it's okay for now, because my dad has a pension, but when he dies, that ends. My mom will have no income except for a tiny amount of social security. They don't have much in savings, maybe low to mid 5-figures. They own their house outright, and another house they are renting, but that's about it for assets.

He's 68 and she's 65, and given their family histories, I expect her to outlive him by quite a bit. I mean, his health isn't bad, and I think 10-15 more years isn't a stretch for him, but most people in my mom's family live into their late-80's or even early 90's. Bottom line is I think she'll be around for a number of years after he's gone, with virtually no income. He does have a term life insurance policy, but it ends when he's like 72 or 73.

So what I was thinking about was talking to my 3 siblings and seeing if they would be interested in opening some kind of investment account now for my mom to have once my dad is gone. It would be best if it was something we all could add money into instead of having to go through one person. And I would want it to be something we could add to at any time as opposed to a set amount being put in each month. I guess a savings account would be one option, but there's really no interest with that. I'm just wondering if there's something that could earn a decent amount of interest over say 10-15 years. Maybe one of those Vanguard target retirement accounts, and set it for 10 or 15 years? Would that meet the parameters I've outlined?

Really a dunce when it comes to investing...it's something I've only recently started looking into even for myself, so any suggestions would be appreciated!

You wouldn't want to use a target retirement account with their age if you want something 10-15 years from now, as they're too high-risk. Or if you do go with something like that, don't put all the money in it. You'll want to go with a good chunk of it in bonds, as they're much lower risk. The target retirement accounts will normally grow 5-10% each year where as bonds will only grow 1-2% a year. But bonds are damn near a guarantee for that amount whereas the target retirement accounts could easily lose that much instead (which is what happened for 2018 as a whole).

One option if you don't want to go the mutual fund route would be American Express's high yield savings accounts, which is insured against loss just like any other bank account. They've recently started promoting them, which carry a whopping 2.10% interest rate. Compared to most bank savings accounts, that is incredible (our USAA savings account has a nice 0.01% interest rate). 2% interest won't earn you a ton, but you won't lose it all either. And you can easily contribute money from multiple sources, either from scheduled auto-debits or whenever you feel like it. I don't think it carries a minimum balance fee/requirement, either.

One option if you don't want to go the mutual fund route would be American Express's high yield savings accounts, which is insured against loss just like any other bank account. They've recently started promoting them, which carry a whopping 2.10% interest rate.

Smith Corks One, I have a question. If you gave your mom 10k and she unfortunately passed away the next day, would you have a huge problem if your siblings divided up the money in inheritance or the money went to paying off her healthcare bills/debt while leaving the family with nothing?

Mixing money with your family can be huge headache. Unless you're ultra wealthy I'm not a huge fan building a savings for the elderly because end of life events can become an expensive blackhole. It might make more sense for you and your siblings to help your mom with immediate bills with monthlyish checks instead of building up a nest egg that might get mismanaged and cause family strife.

The really difficult thing will be managing your family. How will you react when you find out a sibling who has been poor mouthing buys a nice new car? How will you react if your mom gets scammed, which often happens to the elderly?

That's not to say you shouldn't be thinking about this. You gotta do it. I'd just consider the family politics more than the investing.

edit - They should really consider selling that 2nd house. As they get older that's going to be tougher and tougher for them to maintain. Also, houses can have a lot of unexpected expenses which makes budgeting difficult.

You wouldn't want to use a target retirement account with their age if you want something 10-15 years from now, as they're too high-risk. Or if you do go with something like that, don't put all the money in it. You'll want to go with a good chunk of it in bonds, as they're much lower risk. The target retirement accounts will normally grow 5-10% each year where as bonds will only grow 1-2% a year. But bonds are damn near a guarantee for that amount whereas the target retirement accounts could easily lose that much instead (which is what happened for 2018 as a whole).

One option if you don't want to go the mutual fund route would be American Express's high yield savings accounts, which is insured against loss just like any other bank account. They've recently started promoting them, which carry a whopping 2.10% interest rate. Compared to most bank savings accounts, that is incredible (our USAA savings account has a nice 0.01% interest rate). 2% interest won't earn you a ton, but you won't lose it all either. And you can easily contribute money from multiple sources, either from scheduled auto-debits or whenever you feel like it. I don't think it carries a minimum balance fee/requirement, either.

Thanks! That's something I'll look into.

Michael wrote:

Smith Corks One, I have a question. If you gave your mom 10k and she unfortunately passed away the next day, would you have a huge problem if your siblings divided up the money in inheritance or the money went to paying off her healthcare bills/debt while leaving the family with nothing?

Mixing money with your family can be huge headache. Unless you're ultra wealthy I'm not a huge fan building a savings for the elderly because end of life events can become an expensive blackhole. It might make more sense for you and your siblings to help your mom with immediate bills with monthlyish checks instead of building up a nest egg that might get mismanaged and cause family strife.

The really difficult thing will be managing your family. How will you react when you find out a sibling who has been poor mouthing buys a nice new car? How will you react if your mom gets scammed, which often happens to the elderly?

That's not to say you shouldn't be thinking about this. You gotta do it. I'd just consider the family politics more than the investing.

edit - They should really consider selling that 2nd house. As they get older that's going to be tougher and tougher for them to maintain. Also, houses can have a lot of unexpected expenses which makes budgeting difficult.

Good questions and points. If there's one thing I'm actually not at all concerned about, it's having a problem with any of the siblings when it comes to money. We are all an incredibly close family and all live within 30 miles of each other, and there's never been an argument or dispute among us or among any of us and our parents. My two sisters are much better off than I am, and have always been very generous and helpful. Helping out with our parents' monthly bills/expenses now would be great, but there's no way they would accept it. They're doing just fine "right now," and are very proud people who have never accepted any help from anybody. My goal for this investment would be for all of us to add to it and have it grow for a while until my dad dies, then probably just cash out and hand it over to her my mom...although I don't even know how we'd get her to take it then. Probably have to tell her we secretly took out a life insurance policy for him.

All that aside, do you disagree with Swirls that just going with bonds or a 2.1% savings account would be the smartest thing to do over, say, 15 years?

Good questions and points. If there's one thing I'm actually not at all concerned about, it's having a problem with any of the siblings when it comes to money. We are all an incredibly close family and all live within 30 miles of each other, and there's never been an argument or dispute among us or among any of us and our parents. My two sisters are much better off than I am, and have always been very generous and helpful. Helping out with our parents' monthly bills/expenses now would be great, but there's no way they would accept it. They're doing just fine "right now," and are very proud people who have never accepted any help from anybody. My goal for this investment would be for all of us to add to it and have it grow for a while until my dad dies, then probably just cash out and hand it over to her my mom...although I don't even know how we'd get her to take it then. Probably have to tell her we secretly took out a life insurance policy for him.

All that aside, do you disagree with Swirls that just going with bonds or a 2.1% savings account would be the smartest thing to do over, say, 15 years?

I actually spoke to my wife, who is a CFP, on your situation. She has the same perspective as I do - your plan has a lot more downside risk than upside. Here's my case against your very well-intentioned idea

1) I know you don't feel like there will be issues mixing money with your family and you haven't had issues in the past. My wife has heard the same thing countless times, however family dynamics and situations change. 15 years is a long time. Today portfolio management is more about managing families than investing money. If you shop around good investing advice is basically the same everywhere. A good portfolio manager really can't do any better than a 3 fund portfolio that I advocate in this thread. Their advice is pretty much going to be the same thing at a higher cost. Today's portfolio management is more about managing family dynamics. You'd be shocked how often a loving, generous and caring family gets ripped apart due to financial disagreements. More and more money managers study how to handle family situations than investing. I can't stress the risk here enough.

2) Another problem is how do you invest for a 15 year timeframe when it's your mom's nest egg? I have no idea. How much will she need? These are questions with no obvious solution. I suggested the income fund above assuming she had the money today, but if the timeframe is longer maybe the more aggressive Conservative Growth or Moderate Growth funds are more appropriate? How would your siblings feel if one of these more aggressive funds tanked? How would they feel about you if you suggested them?

3) Which brings me to my next point - the investing opportunity cost is huge. This plan will basically relegate some of your investing to be the same as an retired elderly person despite the fact that this nest egg may never be used. A 2.1% savings account is a pathetic return for someone in your age group and it may not even beat inflation. It hurts even more if you forgo maxing a tax sheltered account, like a 401k/IRA, to fund this nest egg.

4) In 15 years you don't know what tax laws will look like and it might be difficult to efficiently transfer the money to your mom.

5) As you note, how do you know if she'll even take a huge lump sum? Your insurance story might be a tough sell.

6) Finally, I would hate to see this money to get needlessly burned up for end of life care instead funding a kids college or something.

I think your doing a really thoughtful thing here, but I can't say I recommend it. Instead I'd you sit down with your mom/dad/siblings and understand their budget then fill in the gaps as needed.

Note: This shouldn't be considered professional advice by my wife or myself. YMMV. Good luck to you!

Good questions and points. If there's one thing I'm actually not at all concerned about, it's having a problem with any of the siblings when it comes to money. We are all an incredibly close family and all live within 30 miles of each other, and there's never been an argument or dispute among us or among any of us and our parents. My two sisters are much better off than I am, and have always been very generous and helpful. Helping out with our parents' monthly bills/expenses now would be great, but there's no way they would accept it. They're doing just fine "right now," and are very proud people who have never accepted any help from anybody. My goal for this investment would be for all of us to add to it and have it grow for a while until my dad dies, then probably just cash out and hand it over to her my mom...although I don't even know how we'd get her to take it then. Probably have to tell her we secretly took out a life insurance policy for him.

All that aside, do you disagree with Swirls that just going with bonds or a 2.1% savings account would be the smartest thing to do over, say, 15 years?

I actually spoke to my wife, who is a CFP, on your situation. She has the same perspective as I do - your plan has a lot more downside risk than upside. Here's my case against your very well-intentioned idea

1) I know you don't feel like there will be issues mixing money with your family and you haven't had issues in the past. My wife has heard the same thing countless times, however family dynamics and situations change. 15 years is a long time. Today portfolio management is more about managing families than investing money. If you shop around good investing advice is basically the same everywhere. A good portfolio manager really can't do any better than a 3 fund portfolio that I advocate in this thread. Their advice is pretty much going to be the same thing at a higher cost. Today's portfolio management is more about managing family dynamics. You'd be shocked how often a loving, generous and caring family gets ripped apart due to financial disagreements. More and more money managers study how to handle family situations than investing. I can't stress the risk here enough.

2) Another problem is how do you invest for a 15 year timeframe when it's your mom's nest egg? I have no idea. How much will she need? These are questions with no obvious solution. I suggested the income fund above assuming she had the money today, but if the timeframe is longer maybe the more aggressive Conservative Growth or Moderate Growth funds are more appropriate? How would your siblings feel if one of these more aggressive funds tanked? How would they feel about you if you suggested them?

3) Which brings me to my next point - the investing opportunity cost is huge. This plan will basically relegate some of your investing to be the same as an retired elderly person despite the fact that this nest egg may never be used. A 2.1% savings account is a pathetic return for someone in your age group and it may not even beat inflation. It hurts even more if you forgo maxing a tax sheltered account, like a 401k/IRA, to fund this nest egg.

4) In 15 years you don't know what tax laws will look like and it might be difficult to efficiently transfer the money to your mom.

5) As you note, how do you know if she'll even take a huge lump sum? Your insurance story might be a tough sell.

6) Finally, I would hate to see this money to get needlessly burned up for end of life care instead funding a kids college or something.

I think your doing a really thoughtful thing here, but I can't say I recommend it. Instead I'd you sit down with your mom/dad/siblings and understand their budget then fill in the gaps as needed.

Note: This shouldn't be considered professional advice by my wife or myself. YMMV. Good luck to you!

Theoretically, if you knew you'd have a lower marginal tax rate in retirement than today you'd do pre-tax and do post-tax if the reverse were the case. Given that you probably don't know what your future tax rate is, I think the hedge your bets plan splitting between the two is sensible.

If you're contributing enough to get any available 401k matching, I'd do any post-tax contributions in a Roth IRA, as in an emergency you'd have the option to withdraw those contributions (though not any interest/gains) penalty free. That said, as I believe Michael suggested when this came up before, the 401k has the advantage of being a payroll deduction, which ensures you actually end up doing your planned saving, and that is way more important than Roth vs traditional.

Edit: One aspect of this choice I don't see discussed much is with how the max contribution limits are not equivalent. The same $6,000 limit applies to annual traditional Roth & Traditional IRA contributions, for example, but $6,000 in a post tax account is clearly worth substantially more than $6,000 pre-tax. If you're bumping against the limits, switching to the Roth side gets you more retirement income if not more nominal dollars in your account.

So what I was thinking about was talking to my 3 siblings and seeing if they would be interested in opening some kind of investment account now for my mom to have once my dad is gone. It would be best if it was something we all could add money into instead of having to go through one person. And I would want it to be something we could add to at any time as opposed to a set amount being put in each month. I guess a savings account would be one option, but there's really no interest with that. I'm just wondering if there's something that could earn a decent amount of interest over say 10-15 years. Maybe one of those Vanguard target retirement accounts, and set it for 10 or 15 years? Would that meet the parameters I've outlined?

I'm sorry I'm late to this, but I have to say something here. If your mom has to go into a long-term care facility, Medicare will NOT cover "custodial care." You should google for details. Medicaid can be used for such coverage, but only once her assets are depleted (some assets are exempt). Usually asset transfers happen from older parents to children for precisely this reason, which is the exact opposite of what you're planning.

So what I was thinking about was talking to my 3 siblings and seeing if they would be interested in opening some kind of investment account now for my mom to have once my dad is gone. It would be best if it was something we all could add money into instead of having to go through one person. And I would want it to be something we could add to at any time as opposed to a set amount being put in each month. I guess a savings account would be one option, but there's really no interest with that. I'm just wondering if there's something that could earn a decent amount of interest over say 10-15 years. Maybe one of those Vanguard target retirement accounts, and set it for 10 or 15 years? Would that meet the parameters I've outlined?

I'm sorry I'm late to this, but I have to say something here. If your mom has to go into a long-term care facility, Medicare will NOT cover "custodial care." You should google for details. Medicaid can be used for such coverage, but only once her assets are depleted (some assets are exempt). Usually asset transfers happen from older parents to children for precisely this reason, which is the exact opposite of what you're planning.

These are all good points, and it's the reason I needed to hire an elder-law attorney in St. Louis, and later one in Louisville to secure power of attorney, and later to make financial arrangements so my mother would be eligible for Medicaid. The steps included an asset spend down and asset transfer, the creation of a Medicaid trust, and working with a social worker who specialized in eldercare issues to choose a nursing home where my mother could transfer to a Medicaid bed (that is, she could stay in her nursing home rather than being kicked to the curb after being bled dry).

So, whatever you intend, I really, really suggest speaking with an elder-law specialist.